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The Labour Supply Effect of the Abolition of the Earnings Rule for Older Workers in the United Kingdom

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Author Info
Richard Disney (University of Nottingham, and Institute for Fiscal Studies, London Financial Services Authority)
Sarah Smith (University of Nottingham, and Institute for Fiscal Studies, London Financial Services Authority)

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Abstract

High effective tax rates on work at and around state pension age deter participation. An example is the "earnings test" operating in several OECD countries. The United States abolished its test for the 65+ age group in 2000. The United Kingdom offers a "natural experiment" of this reform, as it abolished its test, known as the "earnings rule", in 1989. We examine the effect of this change, taking account of the opportunity to defer pension rights. Abolition of the rule raised working hours of older male workers by around 4 hours a week, with a lesser impact on women"s behaviour. Copyright Royal Economic Society 2002.

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Publisher Info
Article provided by Royal Economic Society in its journal Economic Journal.

Volume (Year): 112 (2002)
Issue (Month): 478 (March)
Pages: C136-C152
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Handle: RePEc:ecj:econjl:v:112:y:2002:i:478:p:c136-c152

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Leora Friedberg, 1998. "The Social Security Earnings Test and Labor Supply of Older Men," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 121-150 National Bureau of Economic Research, Inc. [Downloadable!]
  2. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers W95/07, Institute for Fiscal Studies.
    Other versions:
  3. Alan L. Gustman & Thomas L. Steinmeier, 1986. "A Structural Retirement Model," NBER Working Papers 1237, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Jonathan Gruber & Peter Orszag, 2000. "Does the Social Security Earnings Test Affect Labor Supply and Benefits Receipt?," NBER Working Papers 7923, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Michael D. Hurd, 1993. "The Effect of Labor Market Rigidities on the Labor Force Behavior of Older Workers," NBER Working Papers 4462, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Nada Eissa & Hilary Williamson Hoynes, 1998. "The Earned Income Tax Credit and the Labor Supply of Married Couples," NBER Working Papers 6856, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Gustman, Alan L & Steinmeier, Thomas L, 1986. "A Structural Retirement Model," Econometrica, Econometric Society, vol. 54(3), pages 555-84, May. [Downloadable!] (restricted)
  8. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March. [Downloadable!]
  9. Courtney Coile & Jonathan Gruber, 2000. "Social Security and Retirement," NBER Working Papers 7830, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May. [Downloadable!] (restricted)
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  11. A. Zabalza & C. Pissarides & M. Barton, 1980. "Social security and the choice between full-time work, part-time work and retirement," NBER Chapters, in: Econometric Studies in Public Finance, pages 245-276 National Bureau of Economic Research, Inc.
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  12. Leora Friedberg, 2000. "The Labor Supply Effects of the Social Security Earnings Test," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 48-63, February. [Downloadable!] (restricted)
  13. Burtless, Gary & Moffitt, Robert A, 1985. "The Joint Choice of Retirement Age and Postretirement Hours of Work," Journal of Labor Economics, University of Chicago Press, vol. 3(2), pages 209-36, April. [Downloadable!] (restricted)
  14. Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD, Economics Department. [Downloadable!]
  15. Edward Whitehouse, 1990. "The abolition of the pensions 'earnings rule'," Fiscal Studies, Institute for Fiscal Studies, vol. 11(3), pages 55-70, August.
  16. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366 Elsevier. [Downloadable!] (restricted)
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  17. Richard Blundell & Paul Johnson, 1997. "Pensions and Retirement in the UK," NBER Working Papers 6154, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  18. Baker, Michael & Benjamin, Dwayne, 1999. "How do retirement tests affect the labour supply of older men?," Journal of Public Economics, Elsevier, vol. 71(1), pages 27-51, January. [Downloadable!] (restricted)
  19. Macurdy, T. & Green, D. & Paarsch, H., 1990. "Assessing Empirical Approaches For Analyzing Taxes And Labor Supply," Papers e-90-11, Stanford - Hoover Institution.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jeff Borland, 2005. "Transitions to Retirement: A Review," Melbourne Institute Working Paper Series wp2005n03, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne. [Downloadable!]
  2. Hugo Benítez-Silva & Richard Disney & Sergi Jiménez Martín, 2009. "Disability, Capacity for Work and the Business Cycle: An International Perspective," Working Papers 2009-28, FEDEA. [Downloadable!]
    Other versions:
  3. Alan Gustman & Thomas Steinmeier, 2007. "Projecting Behavioral Responses to the Next Generation of Retirement Policies," Working Papers wp153, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  4. Alan L. Gustman & Thomas Steinmeier, 2007. "Projecting Behavioral Responses to the Next Generation of Retirement Policies," NBER Working Papers 12958, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. John Creedy & Norman Gemmell, 2002. "Income Tax Revenue Elasticities with Endogenous Labour Supply," Treasury Working Paper Series 02/22, New Zealand Treasury. [Downloadable!]
  6. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, 2006. "Social desirability of earnings tests," CORE Discussion Papers 2006017, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE). [Downloadable!]
  7. David S. Loughran & Steven Haider, 2007. "Do the Elderly Respond to Taxes on Earnings? Evidence from the Social Security Retirement Earnings Test," Working Papers 223-1, RAND Corporation Publications Department. [Downloadable!]
  8. Jesse Bricker & Gary V. Engelhardt, 2007. "Measurement Error in Earnings Data in the Health and Retirement Study," Working Papers, Center for Retirement Research at Boston College wp2007-16, Center for Retirement Research, revised Oct 2007. [Downloadable!]
  9. Nick Adnett & Stephen Hardy, 2007. "The peculiar case of age discrimination: Americanising the European social model?," European Journal of Law and Economics, Springer, vol. 23(1), pages 29-41, February. [Downloadable!] (restricted)
  10. Richard Disney & Carl Emmerson & Matthew Wakefield, 2003. "Ill health and retirement in Britain: a panel data based analysis," IFS Working Papers W03/02, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  11. Richard Disney, 2001. "Europe: Is There an Aging Crisis or is it a Public Pension Problem?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 2(4), pages 25-30, 02. [Downloadable!]
  12. Richard Blundell & Carl Emmerson, 2003. "Fiscal effects of reforming the UK state pension system," IFS Working Papers W03/13, Institute for Fiscal Studies. [Downloadable!]
  13. Cremer, Helmuth & Lozachmeur, Jean-Marie & Pestieau, Pierre, 2006. "Social Desirability of Earning Tests," CEPR Discussion Papers 5551, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  14. Alan L. Gustman & Thomas L. Steinmeier, 2004. "The social Security Retirement Earnings Test, Retirement and Benefit Claiming," NBER Working Papers 10905, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Pierre-Carl Michaud & Arthur van Soest, 2007. "How Did the Elimination of the Earnings Test above the Normal Retirement Age Affect Retirement Expectations?," IZA Discussion Papers 2868, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  16. Alan L. Gustman & Thomas L. Steimeier, 2004. "The Social Security Retirement Earning Test,Retirement and Benefit Claiming," Working Papers wp090, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
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